ACA “Market Stabilization” Update
ACA “Market Stabilization” Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- Okay, so last week I told you that the fate of enacting the ACA “market stabilization” package hinged on whether Republicans and Democrats could agree on language that would have prevented cost-sharing subsidy funds from being used to pay for abortion services (referred to as the “Hyde language”). Congressional Democrats held the position that applying the Hyde language to the cost-sharing payments was akin to “expanding” the current law prohibitions against using Federal funds for abortion-related service. Something that pro-abortion advocates vehemently oppose. Democrats were also concerned that even if they agreed to apply existing Hyde language to the cost-sharing payments, the Trump Administration may try to expand the application of the language through administrative guidance. On the other side, you had Congressional Republicans demanding the application of the Hyde language to the cost-sharing subsidy payments, similar to the Hyde language that currently applies to the premium subsidies (which generally prevents the premium subsidies from being used to pay for abortion services, although many States have found ways around this language and permit the sale of ACA Exchange plans that cover abortion-related services).
- Analysis: Regardless of your politics – and regardless of your view on the issue of abortion – the fact of the matter is that this issue essentially brought down the entire “market stabilization” package. Yes, conservative Republicans were concerned about providing Federal funds for reinsurance/an “invisible high-risk pool” (because they viewed these funds as a “bail out). And yes, many Congressional Democrats wanted to preserve the “silver-loading” practice, and Democrats also did not want to help Republicans reduce the premium increases that Republicans caused due to repeal of the “individual mandate” penalty tax and other efforts to “sabotage” the markets (their words, not mine). But to me, the abortion issue was the ultimate reason why 6 months of discussions and negotiations over how to “stabilize” the ACA’s individual market (and reduce premiums) never produced tangible results. So now, the question is whether some form of a “market stabilization” package will be enacted between now and Nov. 1, 2018 (when the 2019 “open enrollment” period begins). You can never-say-never in this town, but based on the fact that 6 months of dragging feet, pulling teeth, and political posturing produced zero results, tells me that there is very little chance that we will see a “market stabilization” package any time this year. Also, I do not foresee significant regulatory changes made through administrative guidance. Why? Because I believe that HHS is fairly constrained in what they can do to improve the current regulatory environment through regulations. Which is actually why – at least in my opinion – we are seeing the Administration advance “alternatives” to the ACA. What I mean is this: I believe there are only 2 ways to improve the status quo in the individual (and also small group) market: (1) Improve the current regulatory environment (where I believe material changes can only be accomplished through an act of Congress) or (2) Come up with “alternatives” to the ACA that can be advanced through administrative guidance. Well, we all know that the current political environment in Congress makes it virtually impossible for the enactment of any improvements to the current regulatory environment. So – at least in my opinion – the only option for improving the status quo is by advancing “alternatives” to the ACA through administrative means. From Republicans’ perspective, “association health plans” (AHPs) and “short-term health plans” represent these alternatives, while ACA supporters deride these alternatives as wrecking the individual and small group markets. I am not here to tell you who is right or wrong. But I do believe that the status quo is NOT working for many Americans. And if Congress cannot improve the current regulatory environment through legislation, the only option for improving things for many struggling Americans is by developing alternatives like (1) Expanding AHP health coverage and (2) Allowing short-term health plans as an option for people earning too much to be eligible for a premium subsidy (and thus, locked into the dysfunctional, “un-subsidized” individual market). Other alternatives like using tax-free employer contributions to purchase an individual market plan will be coming soon. So stay tuned.
“Individual Mandate” Update
- CMS Administrator Seema Verma recently said that HHS may develop additional “exemptions” from the individual mandate, adding to an already long list of “hardship exemptions” from the penalty tax. This makes some sense because Republicans – through their Tax Reform legislation – repealed the penalty tax beginning in 2019. Which means that Americans will still be required to pay a penalty tax for 2018 if they fail to obtain health coverage for this year. It is no secret that Congressional Republicans and the President have been itching to provide penalty tax relief for 2018 because – while they wanted to repeal the individual mandate effective for this year – budget constraints forced Republicans to stick to 2019. Also, Congressional Republicans would have liked to have included relief from the individual mandate penalty tax for 2018 in the “omnibus” spending bill. But, including that provision was a non-starter for Democrats, so it was left on the cutting-room-floor.
- Analysis: BUT, if HHS can effectively repeal the penalty tax for 2018 by expanding the “exemptions” from the tax, this technically will NOT cost the government anything (so you don’t have the same budget constraints as Congress did). And, the Administration can side-step Congressional Democrats in achieving a political a “win” that Congressional Republicans can use in their upcoming mid-term election campaigns. Here is another reason I can see why HHS is considering additional “exemptions” for this year: It is being reported that HHS is NOT going to make the recently proposed “short-term health plan” regulations final for 2019. In other words, it appears that short-term health plans (with a 364 day duration) will NOT be available for 2018. So to me, if short-term health plans are NOT going to be an option for those Americans struggling to find affordable health coverage in the ACA’s “un-subsidized” market, the Trump Administration wants to at least provide these Americans with some sort of “relief.” So the next best thing appears to be “relief” from the penalty tax if these Americans take a pass on purchasing an ACA-compliant plan. I can see yet another reason why providing relief in the form of additional “exemptions” from the penalty tax may be considered: In short, now that “market stabilization” has failed, insurance carriers are not only signaling their displeasure, they are telling the Administration that with repeal of the individual mandate for 2019, premiums are already going to be high, AND, premiums may be so high that the carriers may choose to pass on participating in the ACA’s individual markets in 2019. If you add another factor of uncertainty – a.k.a., the availability of short-term health plans for 2018 – the 1-2 punch of (1) no individual mandate for 2019 and (2) people leaving the risk pool in 2018 for short-term health plans may result in carriers making the decision to exit the individual market for 2019 TODAY, as opposed to waiting to see how their “claims experience” for their 2018 enrollment turns out to be before making a decision. So, it appears the Trump Administration’s response is to pump-the-brakes on short-term health plans. But when it comes to providing relief from the individual mandate penalty tax for 2018 (through additional “exemptions”), to the carriers, this is arguably NO big deal. After all, the 2018 “open enrollment” period has come-and-gone, so people are already enrolled for the 2018 plan year (although admittedly, they could drop their coverage by no longer paying their premiums). Also, even the carriers agree that the individual mandate penalty tax has been ineffective. And therefore, allowing people to avoid the mandate is not a huge deal because it has NOT worked in the first place. BTW, based on this fact, I do NOT believe that the carriers should be increasing premiums by 10%+ because the mandate will be gone for 2019. In my opinion, I think the carriers are using repeal of the mandate as an excuse to arbitrarily increase premiums (and I think they know it is an excuse because they know how ineffective the individual mandate has been, and would continue to be if it remained in the law). Just sayin’… But back to my original point: If Republicans cannot give people short-term health plans for 2018, I think Republicans feel they have to give people something. And that “something” is relief from the individual mandate penalty tax in the form of “exemptions” from the tax. We will just have to wait and see how this all plays out.
“Association Health Plan” Update
- Avalere Health issued an analysis, suggesting that around 3.2 million people would enroll in AHP health coverage. This figure includes a shift of 1 million people out of the individual market (5% of individual market) and 2.2 million people out of the small-group market (7% of small group market).
- Analysis: I am not an economist – and I don’t have access to the same market data that an organization like Avalere Health has access to – so I can’t quantify how many people might exit the small group market. BUT, I can say this: Based on what I know, virtually every national trade association in DC is interested in offering AHP coverage to their small employer members. Note, not all of these national trade associations will offer AHP coverage, because for some – after they complete an actuarial feasibility study – they may find that offering AHP coverage does not work for them. But, for many other trade associations, it will work for their members. Which means, the small employer members of these national trade associations will likely be exiting the small group market and joining the AHP (which will either be a fully-insured “large group” or self-insured plan). Same is true for local Chambers of Commerce and other employer-run organizations. That is, many of these organizations will seek to offer AHP coverage to their employer members. It is important to note that many of these organizations offered AHP coverage to their members in the past, but they were forced to discontinue their health plan on account of guidance issued by the Obama Administration in 2011. BUT, if the proposed AHP regulations are finalized, these organizations will offer coverage again, like they did pre-2011. Last point on the small group market: Mila Kofman – who is the head of the DC Exchange – recently said that if the AHP regulations are finalized, 90% of the DC small group market will shift to AHP health coverage. While this may sound alarming, to me, it is evidence that organizations “are voting with their feet.” That is, if DC’s small group market was working, 90% of the market would NOT be seeking other health care alternatives. But they are…
Critics of AHPs Continue to Argue That They Will Offer “Skinny” Health Coverage (no news story)
- Critics of AHPs continue to argue that these plans will offer sub-standard health coverage, primarily because fully-insured “large group” and self-insured AHPs are NOT subject to the ACA’s “essential health benefits” (EHB) requirement. I disagree. Why? As I have told you in the past, it is important to emphasize that one of the main reasons why employers offer health coverage to their employees – even through an AHP – is to attract and retain talent. And, to remain competitive among their peers – and to compete with “large” employers – those small employers seeking to offer health coverage through an AHP are going to make sure that their plan offers a comprehensive level of health coverage, similar to the coverage “large” employers offer today. It is also important to note that the drafters of the ACA recognized that “large” employers typically offer health coverage that is as good as the ACA’s EHBs and is a plan with at least a 70% or 80% actuarial value, which is why Congress exempted “large” employer plans from these requirements. It is highly likely that AHPs will offer similar coverage to their members.
- Analysis: Critics of AHPs also argue that – because these plans are NOT subject to the EHB requirement – AHPs will NOT cover things like maternity care and/or mental health and substance abuse services. Again, I disagree. Why? Most large employers offer at least 2 different – and some times up to 5 different – plan designs to their employees. And in most if not all cases, Plan Design #1 may NOT cover maternity care and/or mental health and substance abuse services. BUT, Plan Design #2 and/or Plan Design #3 WILL cover maternity and mental health/substance abuse services. Which means, this large employer – while NOT technically required to cover maternity and mental health/substance abuse services (because these large employer plans are NOT subject to the EHB requirement) – they are INDEED providing coverage for these important benefits. How would this work? Answer: Large employers are able to offer these different plan designs because all of their employees are part of the same risk pool. Which means, even though healthy employees and/or low-medical-utilizers may gravitate toward Plan Design #1 – and while high-medical-utilizers may gravitate toward Plan Designs #2 and #3 – there is NO adverse selection because from an actuarial perspective, the risk is spread among all of the employees enrolled in all of the Plan Designs that are offered. In practice, participants of Plan Design #1 are subsidizing the participants of Plan Designs #2 and #3, but the actuaries are able to calibrate the premiums for all of these Plan Designs in such a way where participants – whether they are low-medical-utilizers or high-medical-utilizers – are being charged a competitive premium rate. Win-Win: (1) Employees are getting the coverage that they need (2) at an affordable price. I tell you all of that to say this: I believe most of the AHPs that will be formed in the wake of the DOL AHP regs being finalized will mirror what large employers are doing today. Which means, these AHPs will be offering multiple plan designs that will ensure that at least 1 – or multiple plan designs – cover things like maternity care and mental health and substance abuse services. As I told you above, small employers compete with large employers for talented workers, and if given the chance to participate in a health plan that is essentially the same as a large employer plan, these small employers are going to do exactly what large employers are doing today. In addition, national trade associations, franchisees, “cooperative”-based companies, local Chambers of Commerce, and other employer-run organizations all want “to do right” by their members (and they want to attract NEW members). As a result, these organizations are NOT about to offer sub-standard health coverage. Instead, I believe they will adopt the same practice that large employers engage in today, which is offering multiple plan designs that cover a wide-range of benefits at a competitive price point (and at a price point that is going to be lower than small group market coverage today). So again, I do not accept the argument that AHPs are going to “skinny-down” their coverage and refuse to cover things like maternity care and/or mental health and substance abuse services. I believe AHPs will indeed cover these important benefits/services, period-end-of-story.
- Avalere Health suggests that if the proposed AHP rule is finalized, individual market plan premiums would increase by 3.5%, and small group plan premiums would increase by .5% relative to current law. Avalere contends that these increases are largely due to healthier enrollees shifting into AHPs.
- Analysis: A couple of things here. First, premiums in the small group market may only go up by .5%?? That is a negligible increase. To me, if millions of employees employed by small employers can gain access to affordable and quality health plans that provide comprehensive coverage (as discussed above, and discussed in my oral testimony from last Tuesday’s AHP hearing (see attached)), I will take a .5% increase in small group market premiums all-day-long. Second, as someone who is favorable toward AHPs, if you were to ask me if I would be okay with a 3.5% increase in premiums in the individual market, I would say YES. Why? Because I am willing to accept the trade-off between a marginal premium increase and the fact that millions of people who are either (1) uninsured or (2) NOT eligible for a premium subsidy (and thus struggling with the high cost of health insurance in the “un-subsidized” individual market) now have access to affordable and quality health insurance (which AHP coverage would provide). I also accept this tradeoff because I believe the 3.5% premium increase will largely fall on consumers in the “subsidized” individual market (i.e., those covered by Exchange plans). Importantly, these consumers will NOT feel the 3.5% premium increase because the premium subsidies absorb the increase, meaning the consumer does NOT experience any increase in the portion of the premium they are responsible for paying. Yes, this will increase costs to the government (in the form of higher premium subsidies). But, this is also a trade-off I am willing to accept: An up-tick in government spending in exchange for providing millions of people access to affordable and quality health insurance providing comprehensive coverage. Many people would disagree with me though, on all or some of the above points. Third, I have trouble accepting the argument that AHPs are going to “siphon off” the healthy risks from the individual market (which is essentially why Avalere is saying that individual market plan premiums will go up by 3.5% (i.e., Avalere thinks that there will be a sicker mix of enrollees remaining in the individual market)). Here’s why I am being disagreeable here: I believe that AHP coverage will be equally attractive to both a “healthy” individual (i.e., a self-employed individual with no employees (referred to as a “working owner”)) or a working owner that utilizes a significant amount of health care (i.e., a “high medical-utilizer”). For one, I definitely believe that AHP coverage will have a lower cost than an “un-subsidized” individual market plan. Which means, if someone is a high-medical utilizer, they are going to be attracted to a lower costing plan, meaning this high-medical-utilizer may exit the individual market, which would have a positive impact on the overall risk pool (because this “bad” health risk is no longer in the individual market risk pool). Also, as discussed above (and in the first part of my oral testimony), AHP coverage is going to provide comprehensive coverage with adequate consumer protections (because existing law requires the provision of comprehensive coverage through, for example, the ACA, ERISA, and HIPAA). Also, as discussed above, in most cases, AHPs are going to cover all of the EHBs – including maternity care and mental health substance abuse services – through at least 1 of the multiple plan designs the AHP will likely make available. This all translates into this: In many cases, AHP coverage is going to be superior to an “un-subsidized” individual market plan. Which means, if someone is a high-medical utilizer, they are going to be attracted to this superior coverage, meaning this high-medical-utilizer may exit the individual market, which would have a positive impact on the overall risk pool (because this “bad” health risk is no longer in the individual market risk pool). Note, it is difficult to determine whether there will be a one-for-one trade-off between healthy individuals and high medical-utilizers who may exit the “un-subsidized” individual market, even for skilled economists and actuaries. However, I believe the assertion that the existence of AHPs will “siphon off” healthy risks from the individual market is similarly not a well-founded claim that can be objectively verified. Again, based on the above points, a strong argument can be made that high-medical utilizers will find AHP coverage attractive, and thus, exit the individual market (thereby having a positive impact on the overall individual market risk pool.